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Texas Comptroller Proposes Revisions to Texas Franchise Tax Rule 3.586, Implementing Wayfair

By David E. Colmenero and Alex J. Pilawski on August 5, 2019

The Texas Comptroller’s office issued a draft set of proposed revisions to Comptroller Rule 3.586 (Margin: Nexus) today in response to the U.S. Supreme Court’s decision last year in South Dakota v. Wayfair, Inc., 138 S.Ct. 2080 (2018). The Comptroller’s proposed revisions would adopt an economic nexus threshold for Texas franchise tax equal to $500,000 based on the entity’s accounting period.  Specifically, the proposed rule states, “[A] foreign taxable entity has nexus in Texas and is subject to Texas franchise tax, even if it has no physical presence in Texas, if during its federal income tax accounting period, it had gross receipts from business done in Texas of $500,000 or more ….”  The amount of gross receipts from business done in Texas would be determined by reference to the apportionment sourcing rules in Comptroller Rule 3.591.  The proposed revisions would apply to franchise tax reports due on or after January 1, 2020.  Last year the Comptroller issued revisions to Comptroller Rule 3.286 implementing Wayfair for sales and use tax purposes and adopted a similar $500,000 threshold. 

The Comptroller’s proposed revisions to Rule 3.586 was circulated for comment today to the Comptroller’s Taxpayer Advisory Group.  The Comptroller has requested comments by August 20, 2019. A copy of the Comptroller's draft Rule 3.586 is available here.